NZ dollar edges up as European policymakers gather to stabilise the euro

Monday 10th May 2010

The New Zealand dollar edged up as European policymakers gathered to discuss a way to bring stability to the Euro-zone after global markets panicked last week amid fears of Greece’s sovereign debt issues spreading.

The euro gained 1.4% to 1.2896 per US dollar as Europe’s finance ministers gathered in Brussels to promote stability in the region after its failure to contain Greece’s debt crisis triggered panic in the markets, resulting in stock markets tumbling on Thursday.

The politicians hope to announce a stabilisation fund before Asian markets open, and investors are expecting the plan will see the European Commission borrowing money guaranteed by member nations.

Commission President Jose Barroso told reporters that they will “defend the euro, whatever it takes.”

“We’ve seen several commitments (to shore up Greece’s debt concerns) over the past few months, but the underlying causes are still unresolved,” said Khoon Goh, senior markets economist at ANZ New Zealand.

“The markets are heavily short on the euro, and there’s a risk we get a massive short squeeze which would cause a spike up in the euro, which would drag the kiwi with it.”

The kiwi dollar climbed to 71.92 US cents from 71.11 cents on Friday in New York, and was unchanged at 55.83 euro cents.

It gained to 68.13 on the trade-weighted index of major trading partner currencies, from 67.70 on Friday, and increased to 66.46 yen from 65.44 yen.

It rose to 80.20 Australian cents from 79.92 cents on Friday in New York, and slipped to 48.56 pence from 48.76 pence. Goh said the currency may trade between 71 US cents and 72.50 cents, and will take its lead from the market reaction to the finance ministers’ communiqué on Europe’s debt crisis.

In contrast to European gloom, American employment data on Friday showed 290,000 joined the workforce last month, more than the expected 122,000.

Increased labour market participation caused the unemployment rate to rise to 9.9% from 9.7%, and kept a lid on investors’ optimism.

The UK election kept the pound under pressure, even though a hung parliament was the most likely outcome. The pound fell to as low as 1.4578 per US dollar, and recently traded at 1.4882.

Businesswire.co.nz

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